Speculation that the Fed Cuts By 50 BPS Gaining Traction – Currency Thoughts
Speculation that the Fed Cuts By 50 BPS Gaining Traction
September 5, 2024
The cooling U.S. labor market is a main focus with a series of key releases this week. Investors learned yesterday that job openings and quits dropped more sharply in July. Later in the day came the release of the Fed’s Beige Book with nine regional districts showing stagnation or slight economic contraction, and only the Boston, Chicago and Dallas Districts reporting modestly positive growth.
Earlier today, the ADP announced a further estimated slowdown in private employment growth to just 99k last month. New jobless insurance claims slid 5k last week to a near 2-month low of 227k, but the Challenger report on announced job cuts rose in August to a 5-month high. Also, the Labor Dept revised up its estimated growth in non-farm productivity to a robust 2.5% last quarter (+2.7% year-on-year) and that helped cull the rise in unit labor costs to 0.4% on quarter. Compared to a year earlier, ULC went up just 0.3%, down from 0.9% in the first quarter and 4.2% in the initial quarter of 2023. Investors now await the U.S. service sector and composite purchasing manager surveys, which among other things will shed light on the labor market and service sector prices. The gestalt of everything coming out is that a 50-basis point rate cut on September 21 is very much in play, and a reduction of at least 25 basis points is a given.
Ahead of the equity market open in the United States, the DOW, SPX and Nasdaq are each in the red. Ten-year sovereign debt yields have fallen 3 basis points in the U.K. and Germany and by 2 bps in the U.S. and a basis point in Japan. Oil and gold prices are 0.9% and 1.0% higher, and Bitcoin has sunk 2.4%. The dollar has depreciated 0.4% against the yen and by a lesser 0.1% versus the euro and sterling.
Data highlights from other economies today feature mixed news out of Europe. On the one hand, German industrial orders, which had been expected to partly reverse a sizable June advance, instead jumped 2.9% in July on top of an upwardly revised 4.6% climb in June. To be fair, the increase was entirely explained by large foreign orders for such bulky things as aircraft and ships, with all other orders collectively falling 0.8% and domestic orders holding flat. Nonetheless, German orders were 3.7% greater than in July 2023, their first on-year increase this year.
Euroland’s construction purchasing managers index for August printed at 41.7, which matches July’s six-month level and conveys a sharp rate of decline. A deterioration in Germany to a 3-month low of 38.9 offset somewhat higher French and Italian indices of 40.1 and 46.5.
Retail sales volume in the euro area remained weak in July, ticking up 0.1% on month (-0.1% on year) following -0.4% in June, +0.1% in May and no change at all during April.
The British construction sector continued to outperform Euroland last month. The U.K. construction PMI printed at a 2-month low of 53.6 versus the aforementioned 41.7 reading in the euro area.
A downward revision of Irish GDP growth last quarter to -1.0% from +1.2% reported earlier dramatically changes the state of that economy’s recent performance. Irish GDP was 4.0% softer than in the year-earlier quarter.
In Cyprus, a member of the euro area, consumer price inflation slowed to 1.5% in August from 2.1% in July. Inflation there had decelerated from 10.9% in July 2022 to as low as 1.2% in March 2024.
Serbian producer price inflation of 0.9% last month represents a 6-month low and contrasts with a previous peak of 19.2% in July 2022.
Average cash earnings in Japan were 3.6% higher in July than a year earlier, their second biggest 12-month rate of increase since the start of 1997.
A preliminary estimate of South Korean real GDP has been left unrevised. GDP there fell 0.2% on quarter and rose 2.3% year-on-year.
Consumer price inflation in the Philippines slowed to a 7-month low of 3.3% in August from 4.4% the month before.
Central bank interest rates have been left unchanged in Poland and Malaysia. The National Bank of Poland‘s rate has been 5.75% since a 25-basis point cut in October 2023. Such crested at 6.75% in September 2022 and remained at that level until an initial 75-bp cut made in August of last year. The Overnight Policy Rate (OPR) at the Central Bank of Malaysia has been at 3.0% since May 2023. This level represents a cyclical high and was reached after five hikes of 25 basis points each starting in May 2022. “At the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects.” CPI inflation is currently just 2.0%, and growth is running a bit above 4.0%. Officials also welcome the “recent recovery in the ringgit.”
South Africa’s ZAR 64.6 billion current account deficit in 2Q was the ninth quarterly deficit in a row, but the first-half shortfall of ZAR 172 billion was 31% narrower than a year earlier.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Malaysia, Euroland and British construction PMI surveys, German factory orders, Japanese average cash earnings, National Bank of Poland, U.S. unit labor costs and weekly jobless insurance claims
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